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The Linkages Between FDI and Domestic Investment: Unravelling the Developmental Impact of Foreign Investment in Sub‐Saharan Africa
Author(s) -
Ndikumana Léonce,
Verick Sher
Publication year - 2008
Publication title -
development policy review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.671
H-Index - 61
eISSN - 1467-7679
pISSN - 0950-6764
DOI - 10.1111/j.1467-7679.2008.00430.x
Subject(s) - foreign direct investment , investment (military) , international economics , economics , resource (disambiguation) , crowds , international trade , business , development economics , macroeconomics , political science , computer network , computer security , politics , computer science , law
While the recent increase in foreign direct investment (FDI) to African countries is a welcome development, the impact of these resource inflows on economic development remains in doubt. This article argues that a key channel is its effects on domestic factor markets, especially domestic investment, and analyses the two‐way linkages between FDI and domestic investment in sub‐Saharan Africa. The results suggest, first, that FDI crowds in domestic investment and, secondly, that private investment is a driver of FDI, implying that African countries will gain much from improving the domestic climate. Moreover, there are alternatives to resource endowments as a means of attracting foreign investment to non‐resource‐rich countries.